Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that a bank has $10 billion of 1-year loan and $15 billion of 5-year loan. These are financed by $15 billion of 1-year deposit

Suppose that a bank has $10 billion of 1-year loan and $15 billion of 5-year loan. These are financed by $15 billion of 1-year deposit and $7 billion of 5-year deposit. The bank has equity totaling $2 billion and its ROE (return on equity) before tax is currently 10%.

  1. What is the banks asset-liability mismatch?
  2. What is the profit before tax?
  3. Let X% be the rise in interest rates next year so that the banks ROE will be reduced to half. What is the value of X?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics

Authors: Michael Parkin

6th Edition

0321112075, 9780321112071

More Books

Students also viewed these Accounting questions

Question

How does Disney try to redress prejudice and discrimination?

Answered: 1 week ago